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FTX's FTT Token Extends Fall as Binance Liquidation Rattles Nerves

Published 07/11/2022, 09:30 pm
Updated 07/11/2022, 09:30 pm
©  Reuters

© Reuters

By Geoffrey Smith

Investing.com -- Stress is back in the crypto space.

FTT, the token native to Sam Bankman-Fried's crypto exchange FTX, flirted with a record low on Monday after a weekend bust-up with Binance, one of FTX's biggest rivals and long-standing backers.

Binance Chief Executive Changpeng Zhao had cast doubt on the stability of the FTT token, and implicitly that of FTX, on Sunday, announcing that Binance will liquidate all of its holdings of FTT, after "certain revelations" last week that hinted at questionable practices to prop up its value.

The self-styled "CZ" had portrayed the liquidation as "post-exit risk management" - drawing analogies to the collapse of the Terra/Luna network earlier this year that pitched a number of crypto investment firms into bankruptcy. However, he made little attempt to hide his anger.

"We gave support before, but we won't pretend to make love after divorce," Zhao said via Twitter. "We are not against anyone. But we won't support people who lobby against other industry players behind their backs."

He didn't elaborate on the last allegation.

Zhao's actions are all the more significant because FTX and other affiliates controlled by Bankman-Fried have played a key role in stopping a systemic crisis in the crypto investment universe since the Terra/Luna collapse.

Binance's withdrawal could be fraught with execution risk, Zhao acknowledging that it could take months to unwind Binance's position fully.

Without specifying it, Zhao referred to a document cited by Coindesk showing that Alameda Research - a crypto hedge fund majority owned by Bankman-Fried - had accumulated a huge position in FTT deposits or collateral by the end of June, equivalent to over one-third of its total assets of $14.6 billion. The market value of all outstanding FTT on that day had been only $3.32 billion, however, according to estimates by Protos.

Alameda CEO Caroline Ellison rejected the notion that it had inflated the value of its FTT holdings to hide underlying solvency problems,

"That specific balance sheet is for a subset of our corporate entities,", Ellison tweeted, saying that Alameda has over $10 billion of assets that aren’t reflected in the document published by Coindesk.

"We obviously have hedges that aren’t listed," she said. adding that "given the tightening in the crypto credit space this year we’ve returned most of our loans by now."

Coindesk had put Alameda's debt liabilities at the equivalent of $7.4 billion, including some crypto liabilities.

As a show of Alameda's financial strength, Ellison offered to buy all of Binance's remaining FTT immediately.

"@cz_binance if you're looking to minimize the market impact on your FTT sales, Alameda will happily buy it all from you today at $22!", Ellison wrote.

FTT tokens had shed 15% over the weekend as the dispute simmered, then finally erupted. By 5:00 ET (10:00 GMT) on Monday, it was down 3.1% at $22.45, having staged a modest bounce from an all-time low of $21.60 on Sunday.

Bankman-Fried himself confirmed that FTX had processed large amounts of client withdrawals over the weekend after what he called "unfounded rumors". However, he downplayed the incident as likely to be temporary.

"In the end, you should do what you want, and trade where you want. We're grateful to those who stay; and when this blows over we'll welcome everyone else back," Bankman-Fried tweeted.

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